Aspen Aerogels, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 16, 2023. Aspen develops and manufactures aerogel insulation for energy and sustainable insulation markets, and thermal barriers for electric-vehicle (EV) batteries. Its two reportable segments are Energy Industrial and Thermal Barrier.
Financial performance
| Metric | FY 2022 | FY 2021 | Change / context |
|---|---|---|---|
| Revenue | $180.4 million | $121.6 million | Up 48% |
| Energy Industrial revenue | $124.8 million | $115.0 million | Up 9%; 69% of FY 2022 revenue |
| Thermal Barrier revenue | $55.6 million | $6.7 million | Rapid growth; 31% of FY 2022 revenue |
| Gross profit / margin | $5.0 million / 3% | $9.9 million / 8% | Profit fell despite higher revenue |
| Operating loss | $79.2 million | $40.6 million | Loss widened |
| Net loss / diluted loss per share | $82.7 million / $2.10 | $37.1 million / $1.22 | Loss widened |
| Adjusted EBITDA (non-GAAP) | $(60.6) million | $(26.0) million | Worsened; see filing reconciliation |
| Operating cash flow | $(94.4) million | $(18.6) million | Higher cash use, including working-capital investment |
| Capital expenditures | $178.0 million | $13.8 million | Primarily manufacturing expansion |
Energy Industrial segment operating profit was $18.8 million (15% of segment revenue). Thermal Barrier segment operating loss was $13.9 million (negative 25% of segment revenue), reflecting costs to ramp production and capacity. Energy Industrial shipments declined 6% to 32.6 million square feet, while average selling price per square foot rose 15% to $3.83, largely due to product mix. Consolidated gross margin declined to 3% from 8% as costs grew faster than revenue.
Liquidity, financing and balance sheet
- At December 31, 2022, cash and cash equivalents were $281.3 million, with another $1.2 million restricted. Current assets were $369.7 million and current liabilities $78.9 million.
- Total liabilities were $196.0 million, including a related-party convertible note carried at $103.6 million and operating lease liabilities. Stockholders’ equity was $447.4 million.
- FY 2022 financing included $267.5 million net proceeds from a November public offering, $72.7 million from the ATM program, $49.9 million from a private stock placement, and $100.0 million principal of convertible notes issued to a Koch affiliate. The year-end share count was 69.995 million, versus 33.218 million a year earlier.
- The Koch-affiliate notes mature in 2027 and bear interest at SOFR plus 5.50% if paid in cash or SOFR plus 6.50% if paid in kind, subject to stated SOFR limits. The conversion price was amended to approximately $29.94 per share; 3.60 million shares were issuable upon conversion at year-end.
- A GM loan agreement provides up to $100 million in delayed-draw senior secured financing for the Georgia plant, subject to conditions. The loan bears interest at Term SOFR plus 8%; interest may be paid in kind at a higher rate before plant occupancy. The filing does not state that any amount had been drawn by December 31, 2022.
Material changes and business developments
- Thermal Barrier revenue increased sharply, including $45.8 million from a major U.S. automotive OEM and $5.1 million from a major Asian OEM. GM and Distribution International accounted for 25% and 22% of total revenue, respectively; the ten largest customers represented 72%.
- Energy Industrial revenue grew, but shipments decreased. The segment benefited from product mix and project-based subsea demand, partly offset by weaker European maintenance demand.
- Management increased hiring, research and development, sales and marketing, and administrative spending to support EV growth and battery-material development. R&D expense rose 48% to $16.9 million.
- Investment in property, plant and equipment increased substantially: construction in progress reached $209.1 million, including $164.5 million spent on the planned Georgia facility through year-end.
Outlook, risks and unusual items
- Management outlook: Aspen expects strong revenue growth in 2023, driven by EV demand, a continued energy-market recovery and sustainable-insulation share gains. It expects net loss and Adjusted EBITDA to decrease, while operating expenses and capital spending remain elevated. These are expectations, not a quantified revenue or earnings forecast; results depend in part on customer production forecasts, capacity execution and supply availability.
- Georgia expansion: The company estimates approximately $710 million total cost for the second aerogel plant, including $164.5 million spent through year-end. Start-up is expected in the first half of 2024. The plant is intended to add more than $1.2 billion in annual revenue capacity; the company cites combined potential capacity above $1.6 billion and potential margins at full capacity, which are long-term targets rather than current results. Inflation, supply-chain disruption, construction, financing and demand could affect cost, timing and utilization.
- Funding and concentration risks: Aspen expects negative operating cash flow in 2023 and says additional financing will be needed for its growth plans. Major customers, especially automotive OEMs, generally do not guarantee minimum purchases and may terminate or re-source programs. GM contracts have no minimum-volume commitment and may be terminated at any time.
- Other material risks: The company reports annual net losses since inception; dependence on one operating aerogel plant until Georgia starts up; raw-material cost and supply exposure; automotive-cycle and battery-design risks; and competition, warranty, product-liability, intellectual-property, and international-operation risks. Thermal barriers may be incompatible with future cell formats; the current product is not compatible with cylindrical cells.
- Contingencies: A former Polish distributor filed a complaint in March 2023 seeking more than $16 million and other relief; Aspen intends to defend the case. Aspen also reports ongoing Italian patent litigation with AMA. The company states no litigation loss was probable and accrued at year-end.
- Subsequent banking event: Aspen disclosed approximately $233.2 million of cash, cash equivalents and restricted cash at Silicon Valley Bank, plus approximately €1.8 million at its UK affiliate, as of March 10, 2023. Following the bank’s closure, U.S. authorities announced depositor access to funds; Aspen stated it did not expect a material impact.
- Controls and audit: Management identified an ERP-related material weakness during 2022 and concluded it was remediated by year-end. KPMG gave unqualified opinions on the financial statements and internal control over financial reporting. KPMG identified inventory net realizable value as a critical audit matter, citing judgment around future demand and consumption.
- Unusual prior-period item: FY 2021 included a $3.7 million gain from forgiveness of a Paycheck Protection Program loan; FY 2022 had no such gain.
Important facts for investors to verify
- Progress, remaining funding needs, final cost and start-up timing for the Georgia plant and the Mexico fabrication operation.
- Whether EV customer forecasts translate into firm orders, actual shipments and positive Thermal Barrier segment margins; monitor customer concentration and contract termination provisions.
- Cash burn, working-capital needs and access to additional financing, including GM loan draw conditions and the convertible note’s interest and dilution implications.
- Whether gross margins recover as management expects, given 2022 consolidated margin of 3% and the Thermal Barrier segment’s operating loss.
- Inventory valuation and demand assumptions, raw-material availability and cost, and any material developments in the APN and AMA litigation.